It is worth noting, however, that lapsing
could be occasionally optimal in a financial model that allows for stochastic interest rates and/or volatility.
In fact, the independence is an unrealistic assumption because an informed policyholder will consider the value of the guarantee when deciding to lapse: if the account value will be low, the policyholder will not tend to lapse and, on the contrary, will consider the benefits of lapsing
and buying a comparable policy again if his account value willbe high.
* Premiums paid by the policyholder have become unaffordable and the policy is in danger of lapsing
Thus, it appears that lapsing
of an otherwise nonlapse restriction in the event of a highly speculative IPO would not be a compensatory cancellation creating a taxable event.
Long-term health insurance contracts provide policyholders with the option of lapsing
coverage or switching to another tariff within the same insurance company.